The flood of investor money going into Las Vegas real estate is amazing. It really is. The proportion of investor buying is ridiculously high and has kept a steady pace since recession ended. In fact, Las Vegas is a market purely driven by speculative demand from investors. Last month 58 percent of all purchases in the Las Vegas market came from “cash†buying. These are large and small investors buying up properties with no mortgages being recorded. This isn’t your typical Las Vegas family buying a home. When you look at the reasons for investor buying, many are in the market for rentals but you now have people going after flips. In fact, for investor purchases the median price is up a whopping 50 percent over last year. There is a mania occurring when it comes to Las Vegas housing.
It was interesting to see Goldman Sachs and Visa being added to the DOW 30 Index. The importance of this highlights the massive amount of leverage in our economy. Those benefitting from low rates are large investors with the ability to use financial arbitrage and have the ability to keep ahead of inflation. For the last few years, that pathway has come through hedge funds and Wall Street picking up loads of investment properties scattered in the wreckage of the bursting housing bubble. Another interesting piece of data came out regarding wealth distribution in the United States. The top 10 percent of earners took in half of the country’s total income, a new record that goes back to the early 1920s, pre-Great Depression.  Those with the ability to access high leverage products, like many clients of Goldman Sachs, have done extremely well since the recession ended in 2009. For others, not so much. In fact, you can still purchase a $1,000,000 home today for $2,000 a month. Find out how via the wonderful world of leverage.
One of the consequences of rising home values is that housing affordability has once again fallen dramatically. This might not dampen the unrelenting pace of investor buying but it will certainly impact the typical American family looking to purchase a home. While typical households are feeling the impacts of higher rates and spiking prices through lower housing affordability, investors continue to buy up properties. The impact is dramatically seen in the drop of refinances and also, purchase mortgage applications. Keep in mind that each increase in home values not accompanied by a rise in household income means affordability falls for most Americans. The mainstream press simply assumes that everyone is participating in this housing rally. In reality, most have underestimated how much investor buying has occurred over the last few years. The housing market is actually hitting a few constraints as prices rise in the current.
Mortgage rates recently reached another multi-year high as predictions for the Fed’s triumphant taper seem more likely. We continue to hear that people are rushing out of their homes bursting out of the front door with suitcases of pre-approvals but that is clearly not the case. The housing “recovery†is being driven by investor buying. There is no denying that. There is also a clear case materializing that banks are going to eat a significant drop in refinancing revenues and with mortgage applications remaining low given the rampant run-up in prices. Again, the explanation for this is coming from the non-traditional juggernaut of investor buying. As people shuffle to purchase homes there are a few major trends that are appearing on the housing horizon as we enter the fall selling season.
Subscribe to feed
